We only influence our kids for a short time. We care for them in our nest and hopefully instill the values and life skills they need to survive in the real world. We want the money part of their childhood to mirror real life, so they aren’t shocked when they fly away from the nest. Therefore, the real life lesson around money is that the only way to get money is to earn it.
You may decide to just give your kids money to spend, but you may run the risk of creating the “entitlement problem”. Your kids may grow up thinking that because they ask or nag for something, they are entitled to get it. Worse yet, as soon as they reach the age of socialization and start playing with other kids, they may feel entitled to things the other kids have that they don’t.
Instead, consider a balanced allowance system that is based upon both paid and non-paid chores.
Let’s start by talking about what should NOT be paid for. Explain to your children that, like countries, households run on concepts of citizenship. We all share a planet, a community… and a family. Good citizens do their part to make all of these institutions better for all. If there’s litter on the street, a “good citizen” picks it up and throws it away without expecting payment. If toys are left in the living room, a “good citizen” of the household puts them away. It seems obvious to adults that we all have a duty to help make our homes friendly and neat, but kids don’t always understand how everything gets done.
Next, decide what are paid and non-paid chores. Here are a few suggestions for chores that kids should not get paid for: brushing teeth, getting up or going to bed when asked, getting good grades, cleaning up toys, helping when asked, crossing at a green light, etc. Examples of chores for which they could get paid might include collecting recyclables and taking out the trash, and/or raking the leaves and removing weeds.
We recommend separating Citizen-of-the-Household, or “behavioral chores”, from Work-for-Pay or, “life skill chores”. That said, it’s a judgment call; you set the rules. We also recommend creating a chart for the young ones.
Once you define which chores your child does as a citizen of your household versus work-for-pay chores, your next step is defining payday. Most working adults get paid every two weeks, and they look forward to it. Therefore, your child will start to look forward to the day that they get paid for their hard work. Consider paying weekly. Friday is popular because that is typically the end of the week for working folks and school children. You want the kids to count on that consistency.
Now, what to pay? Consider starting by paying kids their age per week. So, a three-year-old gets $3.00 per week and a 12-year-old gets $12.00 per week. If you can’t afford that, pay them half their age per week. Make sure you have enough change on hand so that you pay exactly what is earned.
Saving & Spending
To save money we need to be in the habit of putting some percentage of our earnings into designated savings accounts. It is critical that spending disciplines be introduced to children early, so they are prepared for the temptations that are everywhere in our consumption-driven economy. To introduce these disciplines, consider separating income or earnings into four categories. Make this very visual for your children. For the young kids (ages 3-8), you can get four clear plastic envelopes or four clear plastic jars for each of them. For the older kids, you can set up bank accounts and even put their spending money on a debit card. Label each envelop or jar with the following:
The concept of giving to charity should be taught and built into any budget. The younger children could use their charity money to donate to their church, a local animal shelter or to buy small toys for ill children. The more direct the experience, the more meaningful it will be that they are sharing their hard earned money.
This is instant gratification. Kids have worked hard; they should be able to enjoy some spending right away. Aside from following house rules (e.g. no candy), allow the kids to make their own decisions. If they spend all of their cash on the first day, they learn a great lesson too.
Hint: Going shopping? Remind your children to bring their cash. Try to refrain from encouraging them to borrow from you.
Teach your kids to push off instant gratification, set a savings goal and achieve that goal. The younger children may only save for a few weeks, but the older kids can pick a more aggressive goal.
Hint: Remember the joy and sense of accomplishment when you earned and bought your first expensive item? I bet you still remember what that was! Let your kids feel that same joy. Try not to let family take away meaning from this experience by gifting the item.
Allow your kids to save part of their weekly earnings for a month. Then, take them to the bank to open a savings account. Seeing the bank and giving money to the teller is very empowering and more impactful than opening an account online.
Hint: If your children have been responsible about earning and budgeting their money, you can do a matching plan: match dollar-for-dollar on what they save for their goal(s).
These steps will be helpful financial habits that your kids can use for the rest of their lives. For more details and examples of how you can teach your kids smart money habits, talk to your Money Coach.
About Neale Godfrey
Neale Godfrey is a New York Times #1 Best Selling Author of 27 books on empowering families (and their kids) to take charge of their financial lives. The topic of teaching kids has led her to 13 appearances on Oprah, Good Morning America, Today Show, CNN, among others and her work on children and education has spanned to cover over 2,000,000 parents and their kids.
My Secure Advantage, Inc. (MSA) has teamed up with Neale Godfrey to offer you resources to help you raise financially literate, responsible and confident children.
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We share this article with permission. This article originally appeared here on My Secure Advantage.